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The movement of the Sensex at the BSE in January has created a sense of recovery in the market riding on the reforms ticket. While Sensex rose to hit a 24-month high and crossed 20,000 in January, this upward movement has not been reciprocated by the broader market. In the last 15 trading sessions till January 28 the small and mid cap index at BSE have fallen by 6.5 per cent and 4.9 per cent respectively. The Sensex in this period rose by 2.1 per cent. Interestingly, the indices had outperformed Sensex returns in calendar 2012.

Sebi data for January shows foreign institutional investors have put in net Rs 20,810 crore till Monday. This means the money has mostly followed the top companies. The Futures and Options (F&O) market too shows the FIIs are building up long positions expecting the Indian reform story to strengthen. In the rising market, the domestic institutions have been under pressure to sell because of redemption pressures from investors but thanks to the FII build up they too have continued to buy. As a result the volatility index at the NSE has stayed below 14 for most of the month indicating less short positions in Nifty.

Returning to the larger market story, the data on advance to decline ratio for them has weakened over the last few days and this suggest that institutional investors have been booking profits in the mid and small cap companies ahead of their results. The trend in the average daily turnover in the F&O segment at NSE also suggests it. It went down to Rs 123,789 crore in January from Rs 132,019 crore logged for the month of December 2012.